Date post: | 27-Jun-2015 |
Category: |
Business |
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Supply Chain Financing
2
Agenda
What is Supply Chain Finance1
Supplier Finance Program2
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What is Supply Chain Finance?
Capturing the trade flows of our Principal Client
Suppliers MNC / LLC Principal
Buyers
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Product / Programs Under SCF
Supplier MNC / LLC Principal
Buyers
Supplier Finance ProgramPre & Post Shipment
Account Receivables Finance
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Challenges in a Typical Procurement Process
Financial costs of Supplier based on its financial strength – cost is passed on to Principal in sales price
Cost incurred in LC issuance Advance payments eat up working capital
Financial
Paper intensive process Transaction / Processing costs of payments Supplier might not always be paid on time and this impacts
the relationship & liquidity of Suppliers
Transaction Process
Supplier’s ability to extend credit quantum is limited by its borrowing capacity
Supplier has limited capabilities in extending credit periodCredit
Suppliers have limited working capital to support Principal’s growthGrowth Potential
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What is Supplier Finance Program
Supplier Finance is where Bank finance key suppliers recommended by the Principal
Financing provided to suppliers is specific to purchases made by the Principal
Financing can be made in both pre-shipment (against purchase order) and / or post-shipment (against an invoice)
Post shipment finance can be made either before or after the invoice is accepted for payment by the Principal
Under post shipment, Bank pays the supplier upfront and collects from the Principal on due date
Credit limit decisions are made on the Principal-Supplier supply chain and not purely on financial strength of the supplier
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Funding is Offered at Various Stages
Pre-shipment financing
Post-shipment financing
Supplier based solution Payables based
solution
Post acceptance financing Payables based
Post acceptance financing Invoice based
Principalissues a PO/ LC to the Supplier
Supplier ships goods and
invoices the Principal
Principal accepts invoice
Principal records payables
in the balance sheet
Principal makes payment
at maturity
What is Supplier Finance Program
Funding Offered Under Supplier Finance Along The Supply Chain Activity
Regional Supplier Finance Program local-supplierfinance
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7) Payment
Supplier Finance – Workflow
1) PO to supplier
2) Copy of PO
4) Goods and DO/BL
Principal
3) Pre-Shipment Loan
Loan tenor based on asset conversion cycle
5) Copy of DO/BL
Immediately upon shipment of goods, supplier has to forward copy of shipping docs to Bank
6) Post-Shipment Loan
Post-shipment loan is created to extinguish pre-shipment loan
Supplier
Bank
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Supplier Finance – Workflow of Post-Shipment Financing
What is Supplier Finance Program
1) PO to Supplier
2) Goods and DO/BL
Principal
3) Copy of DO/BL
Upon shipment of goods, Supplier sends copy of invoice & shipping docs to Bank for Post Shipment finance
OR
Supplier sends the accepted invoices for Post Acceptance Finance
4) Post-Shipment Finance
Supplier
5) Payment
Bank
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How Supplier Finance Addresses your Challenges
Key Issues Current Issue Under Bank’s Solution
Liquidity Limited ability to extend credit terms due to
liquidity position of Suppliers Credit terms can be extended to meet
Principal’s requirements
Growth Supplier has limited credit facilities & is
unable to support your growing business Supplier finance enhances your Suppliers’
access to working capital
Processing Costs
Payment-related transaction costs are incurred by you
Payment-related transaction costs are minimized
Procurement Costs
Financial costs of Suppliers are part of working capital cost i.e. passed on to Principal
LCs had to be issued to enable Suppliers to secure financing
Principal’s involvement in the financing solution can help reduce finance costs of Supplier
Suppliers no longer require LCs to secure pre-shipment financing
Balance Sheet Impact
Principal might have to make advance payments to assist Suppliers
Any direct financing assistance to Suppliers impacts your balance sheet
Pre-shipment financing no longer requires advance payments to assist Suppliers
Financing is provided by Bank directly to Suppliers
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Supplier Finance – Workflow of Payables based solutions
local-SupplierFinance – Generic Workflow
7) T
ransf
er o
f non-d
isco
unted
acco
unts re
ceiv
able
on d
ue dat
e
Principal Supplier1) Delivery of goods and/or services
2) Payment Obligation / Due Date3) Payables Information
4) D
isco
unting In
vita
tion
7) Debit of operating account on
due date5)
Acc
epta
nce
6) T
ransf
er o
f dis
counte
d pro
ceed
s
Bank
Ideally fully automated processing
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Regional Supplier Finance Program
No legal/ financial obligation of Principal to Bank
local-Supplier Finance
Principal has a legally binding obligation to Bank
Differences between local-Supplier Finance & Regional SF Program
Requires credit lines on the Principal Does not use Principal’s credit lines
No Credit facility to the suppliers Bilateral credit facility by Bank to the suppliers
All suppliers recommended by the Principal are eligible
Involves supplier evaluation by Bank – all suppliers might not be eligible (subject to KYC)
Always with recourse to Principal Always with recourse to Supplier & no recourse to Principal
Supplier can achieve off balance sheet Supplier cannot achieve off balance sheet
Minimal internet capability to begin with Full internet capability
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THANK YOU